Inequality in South Africa: Beyond the 1%

When we talk about South Africa’s inequality, many of us accept the fact that we live in a country where a small portion of the population is wealthy amongst a majority that are poor. We may feel some unease about it, but looking beyond South Africa, we see that inequality has become a defining feature of global society in the 21^st Century. Few countries are immune to it.

The notion that there’s this enormous economic imbalance between elites and the rest of us received a lot of coverage in the aftermath of the 2008 global financial crisis when the idea of the 1% versus the 99% was introduced. Most of us take comfort in the fact that we’re part of the 99%. It allows us to occupy the moral high ground and carry on with our lives secure in the knowledge that we’re not part of the problem. Donald Trump, Jacob Zuma, the Guptas, Goldman Sachs, Russian oligarchs, filthy rich oil sheikhs – these are the kinds of people who personify the worst of a rapacious elite class and everything that’s wrong with our global economic system. The rest of us are just ordinary people doing our best to get on with our immediate lives.

It’s hard to fault this narrative. But when we talk about South Africa’s inequality, there are some characteristics that don’t quite mirror global patterns of wealth and income distribution. Contemporary South Africa has been described as a country with extreme inequality and we are, in fact, a total outlier in terms of income inequality. The notable difference between us and other countries is that the share of income captured by our top 10% and especially the top 5% is excessive.

UCT’s Southern Africa Labour and Development Research Unit (SALDRU) identified the problem a few years ago, but it recently achieved global prominence in the 2018 World Inequality Report, which states, “In 2014, the top 10% received two-thirds of national income.” The report’s editorial team includes Thomas Piketty and it references SALDRU’s research on income distribution in its country focus on South Africa.

Victor Sulla, who is the lead author of a 2018 World Bank Report on poverty and inequality in South Africa also had this to say about our extreme income inequality: “The people at the bottom in South Africa, they get wages comparable to the people who live in Bangladesh. It's very, very poor. Wages of less than $50 a month. If you take the top 10%, they live like in Austria. So, it's a very high level even by European standards or even by US standards. And we are talking just about employees, people who are getting paid. And not the super-rich who are earning income from factories or property or other investments.”

The World Bank also made extensive use of a SALDRU input paper in this country report on South Africa.

In short then, South Africa certainly has a 1% problem – but beyond this, we also have a 10% problem, which needs to be consciously considered when we think about how to address our crisis of inequality.

Economists at SALDRU have been gathering data about household incomes for many years. We’ve become progressively concerned about the shape of South Africa’s income distribution and feel that it’s becoming increasingly important to engage all South Africans in a conversation about the kind of society we want to live in.

This is why SALDRU launched an interactive online income comparison tool, which allows South Africans to compare their incomes to the rest of the population. After users submit basic information about their incomes and the number of individuals living in their households, the tool allows people to see where they are positioned in the income distribution from the poorest to the richest in the country. SALDRU doesn’t store or share the information submitted and the user interacts with the tool anonymously.

It’s hard to visualise South Africa’s distorted income distribution until it’s plotted on a graph. The result is devastating to behold. SALDRU’s income comparison tool was designed to help people visualise and understand the extreme nature of South Africa’s’ inequality. For us, it’s also important that people are able to see themselves reflected in South Africa’s story. So, every South African who engages with the tool is able to see where they fit in the bigger picture.

Hopefully, people will take the opportunity to reflect on their position in our society as well as the position of others and consider what bearing this has on our country’s inequality. By allowing us to know, rather than speculate on where we and others lie on the income distribution, we hope that the tool inspires some deep reflection about how contemporary South Africa is actually working out for its citizens. SALDRU hopes that the tool encourages South Africans to think about the kind of society we want to create for ourselves and our fellow citizens.

Given our long history of racial oppression and exploitation, race matters a huge deal in South Africa’s income distribution, especially when it comes to who’s wealthy, who has a stable income, who’s just one pay cheque away from falling into poverty and who, despite all their efforts, will never claw their way out of poverty.

Some of SALDRU’s research, which also tracks the social progress of South Africa’s race groups over a period of time, finds that a disproportionate amount of the poorest South Africans remains black and to a lesser extent, coloured.

And while there are some black South Africans who’ve entered the stable middle class, their numbers are small relative to the overall size and share of the black population. We’ve all heard about the “black diamonds”, but this notion of a burgeoning black middle class that is having a positive, transformative effect on our society, is not borne out in the data, nor is it borne out in what black South Africans are saying about their day-to-day realities.

At the same time, we find virtually no whites living below the middle class. Whites have, in fact, comfortably improved their economic status in post-apartheid South Africa because our economy channels such a big share of national income to the top 10%.

The actual nature of the inequality gap in South Africa sees up to three quarters of the population really battling to get by. This is a far higher ratio of vulnerable to better off than in nearly every other country in the world. Our income comparison tool shows that a staggering 79% of South Africans live in households where the income per person is less than the minimum wage.

Meanwhile, half of all South Africans are chronically poor, living in households with a per capita income of R1,149 or less per month. There’s very little income mobility for this group of South Africans. Put bluntly, they’re stuck. Yet, these are also some of our hardest working citizens, be they domestic workers, farm labourers or security guards. Their low earnings limit their ability to focus on anything except the immediate struggle to get by. They just don’t have the financial or social resources to build a better life for their children.

One’s ability to achieve a better position than one’s parents in the distribution of income reflects a society that is creating opportunities and social mobility. Social scientists refer to this as intergenerational income mobility. But underlying South Africa’s inequality gap, is a situation in which income mobility remains an impossible challenge for large swathes of our population.

Some SALDRU researchers conducted a study on income mobility focussing on labour market earnings and found that there are virtually no prospects for children from low-income families to find themselves in a better position on the income distribution than their parents. The study finds similar immobility or “stickiness” at the top end of the distribution, indicating that the children of the well-off are also locked into their economic class.

Based on such findings, this study classifies South Africa as a low mobility society and challenges the notion that one’s background doesn’t hinder one’s prospects for progress. In low mobility societies, getting ahead in life has less to do with a person’s individual characteristics and more to do with the inheritance of advantage and disadvantage.

Consequently, South Africans live in a low mobility society in which the poor continue to inherit disadvantage whilst the well-off continue to inherit advantage. These are the labour market and social dynamics that underlie the extreme inequality that is reflected in the income tool.

In 1964 when Nelson Mandela stood in the dock at the Rivonia Trial to deliver his famous I am prepared to die closing statement, he reflected on a society in which: “The whites enjoy what may well be the highest standard of living in the world, whilst Africans live in poverty and misery.”

He went on to talk in some detail about the earnings of black South Africans and the lifestyle difference between black and white citizens. Above we show that these continue to echo in contemporary South Africa.

As we commemorate the 100^th anniversary of Mandela’s birth, it’s a tragedy that so little has changed about the character of our society in the 54 years since he made that speech.

Isn’t it time we changed the narrative? DM

Access SALDRU’s income comparison tool

Fazila Farouk is the communications manager of the Southern Africa Labour and Development Research Unit (SALDRU), a research unit in the School of Economics at the University of Cape Town. Prof Murray Leibbrandt is SALDRU’s director.